5 ms·
FWIW, IBM is more expensive on a PE basis, trading at trailing PE of 14 compared to Microsoft's PE of 9.8.
by 6sigma 15y ago
FWIW, IBM is more expensive on a PE basis, trading at trailing PE of 14 compared to Microsoft's PE of 9.8.
- chernevik 15y agoHe said he won't buy MSFT b/c he's close with Gates. If he bought and they announced a share buyback / dividend, people would wonder if he heard something from Gates. He sees no point in running that risk. Not a MSFT fan myself but I have to regard Buffett's frienship with Gates as a pretty strong endorsement of him as a businessman.
- bostonpete 15y ago> I have to regard Buffett's frienship with Gates as a pretty strong endorsement of him as a businessman. I would have assumed it had more to do with endorsing him as a philanthropist...
- maigret 15y agoYes, still IBM have been much better stock results than MSFT. Indeed, over this one year, the IBM stock has been doing better than AAPL.
- parfe 15y agoFrom not a very good trader: I think, even if you include dividends, any money in MSFT has been completely stagnant for 10 years (and may have actually lost value). IBM stock paid dividends and nearly doubled in the same time period.
- nknight 15y agoHint: Watching CNBC doesn't make you a good investor, and throwing around the letters "PE" just makes you look like the worst kind of shallow, ignorant investor. No experienced investor bases stock purchasing decisions off P/E ratio alone or even primarily, because the metric has absolutely no intrinsic meaning.
- hessenwolf 15y agoP/E is pretty important, or could you back up why it is not?
- nknight 15y agoEarnings are strictly past performance. They are a fixed quantity that has no meaning other than "for X time period, the company had Y profit". Price is based on a combination of assets (not all of which have fixed values), future outlook (which can change at any moment and is based on subjective judgements and irrational consumer spending decisions), scarcity of the stock, and even second-to-second manipulations by automatic trading platforms. You are dividing an absolute quantity based on past performance by a complicated, ever-changing number based in no small part on future predictions and other subjective and human factors, and trying to extract some sort of meaning. Without a framework in which to evaluate the result that incorporates many, many other factors that are far more interesting, all you've got is a number that assumes the current judgement of the market has some relationship to past performance.
- pinko 15y agoVery helpful, thanks. And for what it's worth, this is what I (and xyzzyz above, I imagine) wished you would have said initially, two comments up, for a higher HN S/N.
- hessenwolf 15y agoYes, helpful, but P/E is still important as a proxy measure for all of the things you mentioned. Current earnings are not a worse predictor of future earnings than many other more complex possible models. Under the assumption that future earnings will be at least reasonably predicted by current earnings, comparing the price as a multiple to that predictor is not a bad way to make a purchase decision relative to other assets. Of course book value is important, as are growth prospects, but book value (hopefully less so after IFRS4) is not really a great estimator of fire-sale value, and I would argue that growth is second order to earnings' first order and accordingly harder to estimate.